tv Best Of Bloomberg Markets Middle East Bloomberg January 20, 2018 1:00am-2:00am EST
♪ yousef: welcome to the "best of bloomberg markets: middle east." i'm yousef gamal el-din. here are the major stories driving headlines this week. bridget bridget's $70 a barrel for the first time in three years. $70 a barrelches for the first time in three years. ahead of the region's largest lender tells us he is assuming the standoff lasts forever. ae billionaire owner of dubai-based property giant tells us why he is eyeing london.
first, iraq has joined the united arab emirates, qatar, and oman and calling for opaque and allies to stick with their agreement. that is despite recent price gains. the deal helped lift brent above $70 a barrel this week. concern.expressed bloomberg spoke to the head of the international energy agency and the omani energy minister and got more reaction. today, oil price is about $70. the global oil demand will billion --out 1.4 1.4 million barrels a day. a lot of new oil production is coming from the united states, from brazil, from africa, from
canada. a lot of oil in the market. >> i think that's the point of socussion, because the focus far has been in the supply side. we often don't discuss the demand side of the equation, and maybe we need to do some more work them up because all reports suggest that 2018 there will be growth on the gdp worldwide. demand,l trigger better and i think we have a responsibility to meet that demand. think this discussion needs to look at both sides. sideten discuss the supply
, as if shale oil is an unlimited resource. they have limitation as well, like the rest of us, although i don't know what that limit is. i have a suspicion. we heard from a speaker here, saying soon shale oil is going to have a peak production that everybody talks about. there is a peak production, even from shale oil producers. with edlet's get more from citigroup and our energy reporter. you were in abu dhabi. you spent time there and father ministerial hustling. -- and saw the ministerial hustling. what were some of the highlights? >> good morning. the point the opec ministers
were trying to make was to stay the course, that this rise to $70 has only lasted a couple hours. it is not a lasting thing. they are saying become, we will stick with the cuts come and they are starting to look at demand. -- we will stick with the cuts, and they are starting to look at demand. they are seeing a lot of challenging shale oil production coming from the u.s. and they are banking on the fact that rising demand will accommodate that as well as the production they are bringing onto the market. yousef: do you shift a sense in tone from the uae and the minister? >> not really. i think he has always been a very -- has been very even killed. eeld.en k saying we are going ahead with
these cuts, committed for a year and we are going to keep that. he did seem to be indicating that we might see a price decline back from $70 in the second quarter. he was saying demand is up now because we are at a high winter demand, and we might see prices slide back a little bit. in terms of the opec reaction going into the later part of 2018, could we see more tangible moves to cut the price down? >> certainly there is an incentive to. they want the price down, because they are fearful of the shale response but also the response of deep water. these are three unconventional resources that have seen the structure plummet. we have these longer-term projects, along with shale, which has a short cycle ahead of it, up and down as it responds to prices. yousef: the risk from shale, we
put this up on a chart. versus your rate count. at what point does it become critical? what price point it does opec need to react? when do you expect to see more action? >> i don't know what action is going to happen from opec, but we have heard from the russian oil minister just before the weekend, and he reiterated the point that was made at the last -- in thist we have agreement to see whether it is time to start up -- start a process of ratcheting back production. with a high price, you got an appreciation in the ruble. central bank is already active, planning $5 billion or more of intervention in the market.
the high price makes that a hard job. yousef: you look at what money managers are doing in the latest data, and they are betting on further gains in wti and brent. how sustainable is that? how much more gains and we have? -- how much more gains can we have? >> it depends on what political risks are on the horizon. the winter weather as part of the activity. post february, as was the case a year ago, we are going to see something more attractive as an asset class for the money that has come into it. this is speculative money at a record high level in terms of the number of barrels of oil equivalent and the percentage of interest. it is not stable. yousef: we heard the energy minister talk about how 2018 is going to see a return to
fundamentals, a market where we have an increase in demand and we won't have to worry much about the supply side of the equation versus 2017, which was deal politics a lot. do you agree with that or will we see 2018 swing the other way around? >> it is not just your politics. it is the financial markets. you were talking a couple minutes ago about the u.s. dollar and what that does for commodities. we have had not just an increase of oil prices, but that increase last week was accompanied by copper prices and iron ore prices. foras a knee-jerk reaction the slippage in the value of the dollar. we have a number of factors lined up, and i think we will be seeing that 2018 will repeat a lot of what we had in 2014, 2015, 2016, 2017, namely a wideband in which oil is trading , probably the same 35 dollars a barrel as last year and the year before. up, moving on
yousef: welcome back to the "best of bloomberg markets: middle east." qatar national bank this week posted its slowest profit growth in at least 10 years. the ceo said the firm has absorbed the initial shock of saudi arabia and other nations in the gulf severing diplomatic ties with the country and is now planning to push ahead with its expansion. target for our strategy in terms of growth.
we are targeting 7% to 9%. expect 5% to 7%, which is in line with our strategy directions. year, 2018.good our diversification will continue. our strategy will continue. yousef: the last time we spoke you were describing a new strategy where you were pushing more into asia, looking at hong kong, other places in asia. how much of a priority does this continue to be going into 2018, 2019 and are there any other new markets you are exploring to offset some of the setback in the gulf? strategy is the same, not changed. no change in our growth targets. we continue to look to become a leading bank by 2020.
markets,ntioned, these to change our presence there to operationsg kong, there. we already opened india. , offering all the prices and services. we try to push more in our especiallyerations, in our core markets, also to expand in southeast asia. would you say it has become more difficult to deal with the realities of the gulf crisis? the longer this drags on, the more difficult it is going to become for lenders like you to deal with? to the contrary actually.
we are adjusting to the new norms. for us, we are operating our business. crisis will continue forever. business is business as usual for us. we have already observed some of the shop. -- already absorbed some of the shock. our growth targets, risk management, funding, growth, as of this crisis will continue forever. i must say also one thing important. we see more opportunities going blockade,om the especially in terms of the local economic growth. the country has been very active in accelerating their vision. yousef: the other take away from 2017 has been your ability to
develop cost efficiencies. are you going to be looking to do more of that in 2018, become leaner and meaner? our efficiency ratio is 29%, which is one of the best in the world. it is a dream for many banks to achieve. yousef: how satisfied are you with the level of u.s. dollar liquidity available in a car? -- in qatar? could it be improved? how comfortable are you with what the central bank is up to on that front? >> i am very comfortable. we don't see issues in terms of the dollar liquidity. in terms of availability, you can see our growth this year, 16% growth in the funding side,
and most of this coming -- yousef: in terms of the road ahead, and i want to get the big picture outlooks, you said you aren't concerned about the ongoing gulf crisis. you are assuming it is going to last forever. if it is not what worries you, what is the biggest risk you see for the remainder of the year for qnb? the normal risks we see here. we see also -- regulatory, we see also geopolitical. the macroeconomics conditions. the interest rate will be increasing, so this will put pressure on the cost find. we know quantitative easing has stopped in the u.s. this will put pressure on emerging markets, so maybe i
a billionaire chairman. he sees plenty of opportunity in the city post-brexit, and he is looking for growth closer to home. i spoke exclusively to him. i think the market has a long way to go. yes, it has matured, and i don't expect the market or the company sales to go like before on 100% or 200%, but i still think dubai has a long way to go. well positioned in dubai as a brand, as one of the best management teams, financially very strong balance sheet. $2 billion in the escrow. we have low leverage. those factors top --
we will continue to deliver. yousef: would you say it is going to be 50-50 in terms of that priority, domestic versus international? >> i would say 60-40. we only have one building in london. we are working on some other projects. dubai will be 60% at least of the total value. yousef: you mentioned the $2 billion, what you are describing as healthy balance sheets. how are you going to leverage that going forward? is this something you could use for acquisitions? see large or opportunity for acquisition in the region, because we have the management team.
we have the cash. if we need, we can acquire lands. overseas acquiring that could be a possibility. you go with acquisition because if you need a big land bank or you need a management team, but we have both and we don't need to. yousef: what are your top three markets abroad that you say, those might be interesting? we are looking at london as a future of long-term market. i see istanbul as an interesting market. it has softened quite a lot. in my view, you enter a market when it is soft. he don't enter when it is peak.
-- you don't enter when it is at peak. in terms of the domestic market in dubai, i was sitting a few weeks ago with a guest and he was local about the dubai government doing more to address are clear signs of oversupply. would you agree with the oversupply story or that the dubai government needs to do more in the market to control it? >> i think we have one of the most amazing, visionary, unique leaders in dubai. he is driving the city to the best of the best. he has moved the city from a small village to where it is today. i think dubai has huge potential. the tourism is growing. retail is growing. the sectors like retail is not growing anymore like before.
that is a mature market. millione are getting 15 -- $15 million tourism. i think i -- i am very positive. i don't see any issue there. yousef: in terms of the success story and sharing more with potential investors, would you be willing to sell a bit of your steak? you own the majority stake in the company. yes, i don't mind to sell a little bit on the right price and the right time. time withhave spent analysts tracking your company. one of the concerns i heard was that there might be some changes in the diffident payout over longer-term. what they size reduced cash flow, possibly. can you say, perhaps reassure them that you don't foresee any major changes in your dividend policy or you don't see a need to change that? see any change in our dividend policy. we have made it clear several
times. we will stay with our dividend policy. i don't see many changes in our dividend policy at all. yousef: are you looking to do any additional projects that are built around the trump brand in dubai or elsewhere? a good relation with the trump organization. they have helped us to build and operate one of the best golf courses in the region. on a global level, they are helping us. unfortunately, president trump announced last year in january that they will not take any more projects outside usa. yousef: if they were to change their policy, you would be open to going for new projects? are a business organization. if there is business -- if there is a benefit for us and them, we can was look at those. yousef: up next, as germany's
yousef: welcome back to the "best of bloomberg markets: middle east." germany's central bank this week revealed it would include the chinese yuan in its currency reserves. made by acement was board member at the asian financial forum in hong kong. he spoke to bloomberg during our show on monday. >> the middle of last year, we made the decision in the bank to include the umb. i cannot talk about the amount we can be investing and i cannot talk to you about the technicalities how we will be investing, but we have been in touch with our colleagues from the bundesbank of china may be half a year ago about this.
we had the ecb go first. it is the right way to do it. other central banks sometimes before the ecb. that is also fine. now, we thought this would be part of the german currency reserves. it is not a major amount i'm a amount, but it is something we decided on and wanted to be part of. the fact that the currency is currently included in the market, the basket, and the fact that european central bank has --ided you probably have similar concerns that the currency is not a free-floating currency. it has restrictions. there are also strict capital controls in china. do you share these concerns? >> yes, we do. we may have to pay part of our
moneys to the imf, so we need accounts. we need to be able to fill phil our obligations -- to fulfill our obligations oas the fourth largest monetary fund. we have made that decision. it is a fact we have decided to go forward. why included at this time? -- why include it at this time? >> we have to fill phil part of our quota -- we have to fulfill part of our quota. we have to be investing in some central banks. reporter: does it also represent the cloud that china does have and the need for trade financing , a number of different avenues that you want to have this currency? >> as a central bank, you have a
currency in your currency reserves to the extent you need it. it is not necessarily whether we needed in order to fit phil our ll ourtion -- to fulfi obligation. we want to have the accounts in this currency that we want to understand the markets of government bonds, etc.. we share the concerns the imf has, so the answer is two yeses on your question. do you have any clear indication that china is liberalizing its fx mechanisms? >> it is their decision. how quickly they will want to do this. they are internationalizing. still, there are obstacles. sometimes there are interventions. it is not 100% predictable kind
of regulatory changes you have. there are also obstacles to using it. more needs to be done. it does not have an anchor currency status. reporter: the biggest obstacles would be the restrictions they have in the capital controls. >> the international use is the trade, because lanes with china will intensify. also the fact that now foreign ownership has been liberalized in china. you can know own up to 51% of the financial institution. it a mores will make international used currency in the future. yousef: is this a plan being put
somethingr is this that will start accumulating? >> we have made the decision sometime time ago, and we will execute our plans. we will do this very closely coordinated with the people's bank of china. reporter: let's talk in broader terms about central banks and uncoordinated asset purchases. set a definite end date for bond purchases? in europe is much stronger than it was. growth has returned to europe. affect ono a positive the labor market you would hope for. the sentiment is many countries, including germany, at an all-time high. means the economy is
growing not only this year, but next year above trends. it also means we are closing the output gap in going in the right direction. this is the background for any monetary policy decisions. whatever is going to happen, we have to be very clear about the fact that we are still in a very -- monetary policy. the inflation numbers are not there. as negative as seems sometimes, but inflation has had ups and downs, and they are not fully at the target. talking, it is not about breaking the car, it is about taking the foot a little bit off the gas pedal. reporter: so they should set a date for tapering some sort of deadline? >> that is exactly what we feel
should happen, and i personally would argue for that. plans to keep interest rates at the record low they are at now until well past the end of asset purchases. that is a big. what do you think well past equals? >> i am not going to answer this debate with you, but right now what we are talking about is not exiting this monetary policy stance. longer will the ecb be buying in the market? you still would need to see how much stronger are you talking about these extraordinary asset purchases and maybe and end date would see a change in the forward -- forward geyer -- in the forward guidance.
yousef: the public investment fund is said to have held talks with local and international banks. it could raise $5 billion this year. i got more on the story from the head of investment strategy at abu dhabi commercial bank and our finance reporter. >> what we have heard from banking sources come international and local banks are starting to have conversations with the public
investment fund about this idea of them starting to borrow for the first time. the idea being they would start to try and use some leverage to get down the massive projects and massive investments. interview with the head of the public investment fund in october, he said this was an idea they were starting to look at, how they can use it leverage to boost their investment returns. now we are starting to see that strategy play out. we will try to go to the next milestone with the story. do we know if they have a preference either way? are they going to put assets into innovation stories? >> right now, very early days. preliminary discussions with lenders. banksclear the domestic
loan growth has been slow. there is little credit demand from the saudi private sector. the local banks will be keen to do loans to the pif, which will essentially be lending to the government. international banks as well, given how active it is likely to become, the international things will be keen to show that they are there for the. . they want to build -- that they are there for the pif. they want to build that relationship. i think there is going to be a lot of appetite. yousef: excellent reporting, as always. matthew martin there with the story about what is going on with the public investment fund. as go to the head of investment strategy at abu dhabi commercial bank. when you hear what pif is doing and you see what the saudi , bank oft is doing
america thinks government spending is going to come in higher than forecast, how does that place you in terms of putting money to work in saudi arabia? yousef: i think saudi arabia is a long-term reform story. if you look at the msci inclusion of uae and qatar a couple years ago, the market is actually quite late in picking up on the story. when the inclusion of the waiting list was announced, there was a much faster pickup. eluded -- saudi arabia is a bigger country. there are more variables ongoing. the situation is not as good as a couple years ago in terms of the oil price.
there is much more potential of diversification in saudi arabia than anywhere else. the oil price has picked up. fiscal consolidation is still on track in saudi arabia. i'm going to quote straight from the report here. they say the saudi authorities may have underestimated the cost of royal handouts. that raises the risk profile. saying -- you clearly disagree with that. you are saying consolidation is still happening at a level you are comfortable with. a you need to look at it from longer-term perspective. when we think about saudi arabia, we are not thinking equity level. you are not thinking earnings growth. there is a story here to sell. as long as the dollar remains relatively weak, and i believe it will remain weaker versus major global curves, major conditions are going to remain quite good.
seen the access of foreigners to capital markets, the restrictions have been relaxed. msci has applauded that. over the long-term, the fiscal budget plan makes sense. there have been measures to alleviate burdens for poorer families. at the same time, there is the vap kicking in. this is not something that will work out immediately. i will -- i have no doubt there will be disappointments as far as the deficit is concerned, but over longer-term trajectory, this is a story of reform. it is not to say the deficit is being compromised. next, flying high. the ceo of private aviation for these digit breaks down its latest earnings and tells us what he sees things happening in the middle east in 2018.
yousef: welcome back to the "best of bloomberg markets: middle east." full-yearosted its 2017 results this week. the firm is valued at 2.5 billion dollars, making it one of the top five european unicorn companies. it has gone from three to 72 long-range aircraft, making it one of the largest private fleets in the world. i spoke to the founder. thee see growth all over world in every single region. the middle east has been strong. is the program where customers subscribe. we have a subscription business model. we have guaranteed availability terror jets anytime, anywhere in the world. taking the middle east, we have over 50% of more new subscription clients in this region. united states is a key highlight
from us. -- key highlight for us. see strong growth all around the world. the united states, middle east, and asia are the highlights. yousef: in terms of what is likely to outperform when you look at those markets, will be one geography you would say this is going to be key for 2018? be challenging either because of a changing external environment or because of some of the domestic challenges? >> in every single region in the world, certainly the that certainly the tech sector in the u.s. has surprised us. we can also do transpacific flying. we saw strong growth, west coast u.s., numbers up 40% in the united states. our goal is to be a market leader in every single region around the world. middle east is really strong. 70% of the world can be reached within 8 -- within an eight hour flight. the middle east is at the center
of this growth. fallingyou have seen a role of ownership in business jets in the united states. is that trend continuing come and how are you working around or with that? >> there is a market of 7000 airplanes in our market. it is the long-range, business market. we see a trend around the world that boards won't approve a $40 million aircraft purchase and put it on the balance sheet. now, we offered that availability, guaranteed availability exactly like ownership. a very strong micro trend. we don't see reverse on that. it is not only the u.s. it is here, and asia, in europe, everywhere. that is driving the growth away from ownership and full ownership. yousef: what about higher energy prices? it is a very different brent crude price now than it was in
2017. if it goes further, it has an impact not just on some of the more public aviation companies, but also smaller, privately run companies like yourself. >> the oil price is a pass-through. we are not affected by that. it is a fraction of the overall cost. we don't see it as a flow down. it is a pass-through from our own performance point of view. netef: in a positive or a negative? >> i see it as a net positive. quarter when there was a crisis in energy prices, -- corporations have more money and they spend more money. they spend it on a very efficient business tool, which is what a private jet is. we are offering time. we are making time for our clients, because they can be faster. yousef: you mentioned changes in the boardrooms around the united
states. those are all around the world. ceo's i talked to describe how they have had to adapt. some have been flying private and a half to fly first-class commercial. in terms of how the demand is broken out in the gulf, which markets are still standout? are you seeing interesting trends? >> the strongest growth is here in the uae, definitely in saudi. saudi is the biggest market in the region. we see both kuwait and oman picking up strongly in the last three to four quarters. it's corporations. executives have more time available, going to many locations in the shortest time. corporations are spending. --porations are precipitate are participating in global growth. a lot of your outlook
has been positive, and you see a lot of strength in key economies. there is a was going to be a challenge and a risk. what is your top risk going into 2018? what makes you sleep a little less at night? >> there is always macroeconomic, micro political risk. we have seen it, especially in north korea and situations like that. that we can never influence. there iso see is that very strong growth currently. europe has been a highlight over the last three to four quarters. risks are always something we need to watch closely, but we have been through many crisis. we feel strong. yousef: that is it for this "best of bloomberg markets:
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new york and around the world, i'm jonathan ferro, and this is "bloomberg real yield." ♪ coming up, investor shakeup in the d.c. drama, and the potential for a government shutdown. the treasury selloff continues, 10 year yields break a high. and signaling the end of qe. we begin with the big issue, the slow-motion treasury selloff. >> it could be a bond bear market. i think it is more of a teddy bear market than a grizzly bear market. >> we don't need to worry about